Coal industry keeps an eye on proposed EPA rulemakings

The environment editor of the Wall Street Journal sat down with the CEOs of Rio Tinto and American Electric Power Co. in March for a discussion about the predicted demise of coal power. When asked about predictions that a third of the country’s coal fleet will be retired in the coming years, AEP CEO Michael Morris said the forecast “has everything to do with the approach that the EPA may or may not take.”

A slew of notable EPA rulemakings affecting coal-fired power plants are on the horizon. Chris Amandes, a partner at Vinson & Elkins, estimates around eight rules are currently in the pipeline that will require major adaptations from coal-fired power plants. “All these rules coming together more or less at the same time, with respect to investment horizon for a coal plant or the time required to [make] some of these improvements, means they’re all going to hit the industry over a six- to eight-year period,” he says. “It really implicates our energy policy on a national level.”

Among the proposed rulemakings, a few stand out for the unique impact they’re expected to have on the coal industry.

Downwind Reductions

The Interstate Transport Rule, proposed in July 2010, identifies 31 states and the District of Columbia that make it impossible for downwind states to meet federal ozone and fine particulate matter standards. It requires those states to make reductions in sulfur dioxide and nitrous oxide emissions that travel over state lines. Although it applies to all power plants, it would have the largest impact on coal-fired power plants.

The final rule was sent to the Office of Management and Budget in May and is expected to take effect in 2012.

The rule will replace the Bush-era Clean Air Interstate Rule (CAIR), which the D.C. Circuit struck down in 2008 after determining it included “fatal flaws,” the most controversial being a trading provision, which the Clean Air Act doesn’t allow. CAIR remained in effect while the EPA crafted a new Transport Rule that limits interstate trading.

“It tries to allow for some trading, but it can’t do as much as not just the Bush administration, but the Obama administration would do, if it could,” says Seth Jaffe, a partner at Foley Hoag. “If there were any kind of working relationship between the parties in Washington, they would have amended the Clean Air Act to allow something like the Bush rule.”

The rule comes in two phases: Because the existing CAIR has remained effective since the court ruling, most of the first-phase reductions have been met. Uncertainty still surrounds the second phase, which addresses the stricter ozone standard the EPA adopted in 2008. The EPA has been contemplating lowering the ozone standard even further, so it’s conceivable that this could create a third phase of the Transport Rule, although Amandes points out that it may not be necessary because there are enough other rules on the horizon that will require reductions for other reasons.

Mercury Matters

Among those rules is the so-called Utility MACT (maximum achievable control technology) Rule. The cornerstone of the rules proposed in March addresses mercury emissions, but the Utility MACT Rule requires reductions covering 83 other toxic substances including acid gases, sulfur dioxide and particulate matter.

Although the rule would apply to all power plants, according to the EPA, coal-fired power plants are responsible for 99 percent of mercury emissions and “the bulk” of other pollutants from the power sector.

The agency has estimated annual compliance costs at $10.9 billion. “That’s a very expensive EPA rule,” Amandes says. The Utility Air Regulatory Group, a coalition of utility companies and trade groups, has called the Utility MACT Rule “one of the most far-reaching and expensive rules EPA has ever proposed under the Clean Air Act.” The payoff, the EPA estimates, will be annual health benefits yielding annual savings of $59 billion to $140 billion and the annual prevention up to 17,000 premature deaths.

The EPA plans to release its final rule by November, and Jaffe expects implementation absent a Congressional shake-up. “All the science suggests they need to do something like what they’re doing,” he says.

Ash Concerns

Moving outside the confines of the Clean Air Act, the coal industry also is readying for federal regulation of the disposal of coal combustion residuals, often called coal ash, the country’s second-largest source of industrial waste. Coal-fired power plants use pollution-control technologies to capture the byproduct, which contains dangerous pollutants.

The question of how to regulate its disposal was precipitated by the Kingston, Tenn., coal ash spill in December 2008 that saw more than 1.1 billion gallons of coal ash slurry break through a dam and out of a containment area at the TVA Kingston Fossil Plant. The spill brought to the forefront the fact that coal ash disposal currently is governed on a state-by-state basis.

Since the Kingston spill, the EPA has begun inspecting individual coal ash dams, but without federal regulations, it depends on industry’s voluntary compliance with agency recommendations. The EPA published proposed rules for comment in June 2010, but they face delays until late 2012 or 2013, which the agency attributes to a large volume of submitted comments.

Still in question is whether the EPA will regulate coal ash as a hazardous waste under the Resource Conservation and Recovery Act of 1976 (RCRA). The industry is staunchly opposed. Coal-fired power plants routinely sell coal ash for beneficial reuse, for instance in cement and drywall, and classifying it as hazardous would essentially kill the aftermarket.

Industry concerns about the effect of this confluence of EPA rules center around preserving the existing coal fleet. As cited in the Wall Street Journal, the industry estimates around 30 percent of the coal-fired power plant capacity will be retired in response to the major capital investments required to comply with future EPA rules, with implications for the national energy grid.

While the rules will no doubt impact the coal industry, Lisa Evans, senior administrative counsel at non-profit environmental law firm Earthjustice, says arguments that such regulation will harm the U.S. economy have no basis. She points to EPA studies on the impact of environmental regulations such as the Clean Air Act, which conclude the benefits to human health and the environment far outweigh the costs of such regulation.

“There are a lot of allegations on the part of industry that [regulation] will be harmful to the economy, but where the statistics and the data are, you can clearly see that these arguments don’t hold water,” Evans says.